Indie HD Vest Bought by Blucora, Maker of TaxACT, for $580M

The tax-software firm hopes to boost business by aligning with the indie broker-dealer, which has about 4,500 reps

HD Vest, which has about 4,500 affiliated independent-contractor advisors, is being sold to Blucora (BCOR), the company formerly called InfoSpace and maker of the TaxACT tax-preparation software, for about $580 million. The deal is expected to close either late this year or early next year.

For the past four years, HD Vest has been owned by an private equity investor group led by Parthenon Capital Partners; the group includes Lovell Minnick Partners and Fisher Lynch.

“Part of the reason they wanted to partner with HD has to do with unlocking the value of their 5.5 million customers who do tax returns with TaxACT each year,” said HD Vest President and CEO Roger Ochs in an interview with ThinkAdvisor.

The TaxACT client base includes a large number of millennial users, Ochs said, so “as they enter into life changing events … they might need the help of a live, local advisor to navigate their financial plans.”

In addition, about 450,000 TaxACT users have over $100,000 in yearly income, and 28,000 earn more than $250,000 per year. “These clients have sufficient funds for financial-planning opportunities. They could be an ideal prospect for our advisors,” he added.

Much of the business growth expected by both partners will come via the data mining of tax returns, which HD Vest already does today, according to Ochs.

“The difference is that now we are part of a larger public company with access to the public capital markets. Our advisors can buy our stock, too,” he said. “It’s exciting. It’s something we have been thinking about for a while. In addition, it should help our recruiting efforts, as advisors see where potential business generation and leads can come from.”

For its part, Blucora sees the arrangement as “a transformative acquisition,” according to President & CEO Bill Ruckelshaus, in a statement. “HD Vest and TaxACT operate in adjacent markets with complementary solutions.”

In 2014, Blucora had revenue of about $580 million, up slightly from 2013. Its net income, however, fell to $12.3 million from $20.4 million. On a GAAP basis, the company reported a loss of about $35.5 million in 2014 vs. a profit of $24.4 million in 2013.

Its stock took a big hit on Wednesday, closing down 15% to $12.58.

“This transaction allows us to focus strategically, streamline our portfolio and meaningfully reduce corporate overhead in the coming months,” Ruckelshaus said in announcing the deal. “Effective for these moves, Blucora will be well positioned in growing markets. Our company will generate substantial free cash flow that will be returned to shareholders systematically starting in 2017,” Ruckelshaus explained.

HD Vest has about $38 billion in client assets, or about $8.4 million per advisor, many of whom are CPAs. “They have a low average production level per rep,” said BD recruiter Jon Henschen in an interview, though “they have a good cluster of $1 million producers.

“The upside to this situation is that HD Vest makes bigger spreads [via lower payouts] on the business, and it has a low compliance risk,” Henschen explained. “Their CPAs are primarily making income on tax preparation and not securities, and CPAs are sticklers for details and compliance.”

As for what motivated Blucora to gobble up HD Vest, the recruiter says it’s likely to be great product distribution, i.e., cross-selling of products across the different businesses.

“The firm no has track record of owning a broker-dealer, so we don’t have anything to go on,” Henschen said.